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Markets in Europe Plunge (Again) Over Greek Default Fears

4:45 am in Uncategorized by Bill Egnor

Stock Market Fortune Cookie

Stock Market Fortune Cookie by bransorem

It looks to be a rocky start to the new week in the world financial markets. Major stock indexes in Europe plunged between 2.42% and 4.57% in trading there. What is the big driver of this new sell off? The renewed fear of a Greek debt default and all that would mean for European banks that have large amounts of Greek bonds on their balance sheets.

The slowly dawning realization that no amount of austerity is going to allow the Greek government to cover its financial commitments and a growing reluctance by the German government to even try is putting a fairly panicked patina on the world markets.

It is not like this is really that unexpected. The problem is that as the Greek government has slashed spending and wages and hours, their economy has slowed down. The unemployment rate in Greece has is nearly 16% and that only counts those who are looking for work, not so-called discouraged workers.

With that level of unemployment any cuts in demand just wind up as more unemployed workers who can’t afford to spend very much. This means there is less tax collected, less production needed and more people are likely to be laid off.

The next logical step for Greece is to default on its debt. This could be good for Greece in the long run, but in the short run it is likely to make the Euro Zone a really unhappy place. The index that lost the most value today was the French CAC. This is because Frances three largest banks are major holders of Greek debt. All three are expected to be down graded by credit rating agencies some time this week for this very reason.

If this seems familiar it is because it is very similar to the way that our own housing bubble collapse played out. Risky debt began to become a liability and the amount of it in the hands of US and other nations banks threatened to rob them of the liquidity they needed and make it nearly impossible for them to borrow money short term.

That it is happening to the second strongest economy in the Euro Zone is making a lot of investors nervous, and with good reason. The Washington Post quoted the German Finance Minister as saying:

“To stabilize the euro, we must not take anything off the table in the short run,” Roesler told Germany’s Die Welt newspaper. “That includes as a worst-case scenario an orderly default for Greece if the necessary instruments for it are available.”

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Are There Any Rational Actors Left Among Republicans?

5:47 am in banality of evil by Bill Egnor

Insane Asylum

Insane Asylum by simonk

Steve Benen at Political Animal managed to reach back a couple of years to find just the right quote form John Cole about dealing with the Republicans in Congress:

I really don’t understand how bipartisanship is ever going to work when one of the parties is insane. Imagine trying to negotiate an agreement on dinner plans with your date, and you suggest Italian and she states her preference would be a meal of tire rims and anthrax. If you can figure out a way to split the difference there and find a meal you will both enjoy, you can probably figure out how bipartisanship is going to work the next few years.

I know that I have a spent a lot of time hammering Republicans for being dumbasses and nitwits over the last couple of years, but this whole fight with the debt ceiling really is showing what happens when conspicuously uncurious people who only listen to their own ideological outlets get into power.

The Conventional Wisdom (including mine) keeps saying that we will get some kind of deal to avoid a real potential disaster. And things certainly look that way. After all the rumors are that Majority Leader Reid is going to unveil a plan that cuts 2.5 trillion (2,500 billion) from the budget over 10 years in ways that Democrats can get behind. A major feature of this plan is that we’d say 1.5 trillion by ending our wars in Afghanistan and Iraq. It would have no increased revenue and it would have no cuts to entitlements.

All of this is to the good (if you can call anything about Republican made mess good) in that the Democrats have offered the Republicans everything they insisted on, cuts that equal the increase the debt ceiling and no new revenue. In any sane world that would be that, a total acquiescence’s to the hostage conditions and an end the crisis.

The problem is that it is unclear that Republicans can take a solution that does not only meet their stated goals but lets them stick it to the people they have decided that they don’t like. It is no mystery that the GOP really does not like the “average” people of the nation. They have been showing their disdain for the millions of unemployed people for a very long time, call them lazy and wanting to subject them to random drug screenings merely for being victims of the economy they helped to engineer.
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Will Republican Moron Caucus Break The Ecomomy

5:41 am in Uncategorized by Bill Egnor


Moron by ettermag

What does it take to break a delusional political party? After all we have seen the Republicans accept (at least tacitly) without a whit of proof that there was something fishy with where the President was born. We have witnessed this Party deny science at every turn but especially where climate change is concerned.

The big Kahuna is, of course, the lies that were told and still are believed about there being any connection between Saddam Hussien and Al Qaeda, and that he had weapons of mass destruction prior to the Iraq war.

We’ve been brought to this point by a lot of factors, the growth of Fox “News”, the efficacy to the Koch Brothers and other Rightwing financial fat cats of having total morons who will spout any BS they are told to by their handlers; and the general Republican war on expertise.

This brings us to where we stand today, 19 days before we run out of emergency measures that have kept our nation out of default. It no longer the leaders of the Republican Party that are holding things up. It is the rank and file morons like Louise Gohmert, Michele Bachmann and Steve King, who yesterday took to the air waves to say that the whole issue of the debt ceiling and a possible default was a “misnomer”.

Leaving aside the fact that I am pretty sure that Rep. Bachmann can’t define misnomer (it is an interpretation of data that is known not to be true, i.e. what James Inhofe says about climate change being a hoax is a misnomer) there is a massive logical inconsistency here.

You see the Republicans are the ones who looked at the debt ceiling and said “We know this has to happen, it is better than unemployment benefits extensions! Let’s put the screws to the Democrats to get things that we never could under any other circumstances!”
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Greek Debt Crisis, No Simple Answers, For Anyone

5:36 am in Uncategorized by Bill Egnor

Greek flag

Greek flag by gingerbeardman

There are a few truisms that pop up again and again in my life; Everything takes longer and costs more; Nothing is simple and There are no simple answers to complex problems. All of these seem to be true of the Greek debt crisis. There are a couple of articles in the New York Times today that lay out the scope and complexity of the problem, you can find them here and here.

Unlike the United States the Greek government is actually in a debt crisis. They have probably entered a debt trap, where they don’t have enough money to pay all their normal bills plus the interest on their debt. This means that they have to borrow to cover the interest. Of course when they borrow they have more interest and more debt.

Unlike the United States or other nations who have a sovereign currency they can’t just devalue their currency or lower interest rates. Being part of the EU and the Euro zone these things are controlled by the European Central Bank.

This puts them in a really bad place with few options. Right now the three groups that are loaning them money, the IMF, the European Union and the European Central Bank are demanding cuts or savings totaling $40 billion by 2015. That is a huge amount of the Greek GDP, nearly 12% of GDP. To give you an idea of what that would be in the United States economy it would be like cutting out $1.75 trillion (yeah, 175,000 billion) in the same time period.

To do this the Papandreou government is basically going to have raise taxes, slash wages and employment and sell off a bunch of the state owned assets of the nominally Socialist state. The question that is starting to emerge is, will this actually fix the problem?
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